Crypto Tax Dodgers Are Tempting Fate

Mark Gladden is the sole proprietor of a digital asset mining and trading business in New Mexico.

The following article is an exclusive contribution to CoinDesk’s Crypto and Taxes 2018 series.

Benjamin Franklin’s 1789 axiom that “in this world nothing can be said to be certain, except death and taxes” is a pragmatic truth. It deals with what “is.” We all pass on, and we all pay our dues.

These days most citizens are accustomed to the idea that – however much we dread it – paying taxes is as much a guarantee in life as the conclusion of life itself. It represents the outcome of the legislative process, in which elected leaders draft bills which ultimately become law.

Institutions like the Internal Revenue Service are then tasked with enforcing these laws, but they do not create tax law themselves, nor do they make decisions regarding tax expenditures.

Above all, they do not care if a taxpayer disagrees with the law because it’s not their responsibility to create or amend legislation. They collect and enforce – period.

Yet many cryptocurrency enthusiasts seem utterly dumbfounded by this, and are brazenly willing to risk the threat of a lifetime of recurring audits, massive fines which wipe out their capital gains, and even downright imprisonment – all for the sake of the wholly separate topic of how much tax “ought” to be collected and how those dollars “ought” to be spent.

Did Al Capone think he “ought” to pay less tax? Sure. Did it matter when the cell door slammed shut behind him? No.

What ‘ought’ to be

This second form of truth – what “ought” to be – is normative in nature, concerned with ideals, and inherently a messy subject with a myriad of factions all claiming to be right.

Some citizens want to pay no tax at all, presumably content to drag down their neighbors while imagining a world in which fires put themselves out, highways and bridges build themselves, and no armed forces are required to prevent foreign invasion because everyone will sing each other to sleep at night.

Others want the rich taxed so heavily that anyone with an ounce of gumption decides it’s a waste of time growing a business, and a presumably endless spigot of tax dollars will magically pay for everyone to go hiking seven days a week before watching the latest episode of “Game of Thrones” on free satellite internet beamed into their free tiny home situated on a free lot on the peak of forever-free Mt. Utopia.

Clearly the truth is closer to the middle, and if there is indeed a middle ground where some amount of tax is necessary, then everyone who enjoys the benefits of tax expenditures – safety from invasion, use of transportation services and infrastructure, access to a robust legal system – must also pay their share.

That doesn’t mean we should accept a broken system if taxes are being used inappropriately. Far from it. We should fight with every available legal means to change it to better serve our collective interests.

Being active in political campaigns, calling representatives, sending articles to news outlets, and joining active campaigns designed to force politicians to live up to their promises – all of these are among the freedoms which every citizen of a democracy enjoys.

Yet how many of people actually do the legwork before complaining about the status quo, then rationalizing their decision to hide income?

Facing reality

Most citizens are inflamed by ultra-rich politicians and businessmen who are found to have hidden millions in offshore accounts, and similarly the crypto community should raise a skeptical eye at those who claim they are hiding income because the world is not what it “ought” to be. Deal with the reality of what “is,” then set about changing things to how they “ought” to be.

Even if you vehemently advocate for hiding income, at very least do yourself a favor and research just how many clever tax cheats have been caught, fined, or jailed years later when old technology was proven vulnerable and exploited by weaknesses that new tech uncovered.

Every action you perform online, from bank deposits, purchases, and email exchanges – all of it, including all activity on most of the major crypto exchanges – is now or may soon be available to your government’s tax enforcement institution. Some government agencies have even been reported to wholesale track all internet data, going so far as to store all encrypted traffic until future technology renders it vulnerable.

Do you really want to risk everything when the alternative is to simply do your best and provide a good faith reporting of your capital gains and mining income for this year or any previous year you’ve missed?

Sure, you’ll pay somewhere between 0% and 39.6%, but that still leaves you with 100% to 60.4% of secure, guaranteed income, possibly more if you make use of all available deductions and depreciation expenses.

Deal with what “is” by reporting your income and paying your taxes, then deal with what “ought” to be by getting involved and advocating for changes to tax law and expenditures.

You’ll sleep easier at night by remembering Franklin’s maxim about death and taxes.

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